VIX Attracts Hedges as Midterms and Geopolitical Tensions Signal Market Volatility

Investors are increasingly seeking protection against stock market volatility as the calendar approaches a historically turbulent period. The rise in hedging activity is largely reflected in the Cboe VIX, often referred to as Wall Street’s “fear gauge,” which tracks expected 30-day volatility in the S&P 500 based on options pricing.

September and October traditionally see the sharpest increases in the VIX following midyear dips. This seasonal pattern is currently being compounded by several converging risks: the upcoming U.S. midterm elections, potential interest-rate fluctuations due to bond supply dynamics, hawkish signals from central banks, and escalating hostilities in the Middle East.

Charlie McElligott, a strategist at Nomura, described these overlapping concerns as a “negative risk trinity.” He noted that equity investors now have tangible catalysts to hedge their portfolios after recently reinvesting cash into the market. McElligott highlighted that the VIX three-month call skew has reached the 91st percentile, indicating that bets on rising U.S. equity volatility are currently priced relatively expensively.

“As we move toward year-end, we anticipate higher equity-market volatility—both upside and downside—as rate expectations shift and cross-asset pressures build,” said Luke Rahbari, CEO of Equity Armor Investments. He pointed out that stress in Treasury markets is already beginning to spill over into equities, with the MOVE Index, a measure of Treasury-option volatility, remaining elevated as bond markets grapple with shifting views on inflation and rate cuts.

Despite these near-term concerns, some analysts suggest conditions may stabilize later in the year. Zachary Griffiths, head of investment-grade and macro strategy at CreditSights, noted that both the MOVE and VIX indices are currently trading near their 10-year averages, while corporate credit spreads remain historically tight. He cautioned, however, that volatility could increase further as markets emerge from the typical summer slowdown.

Looking ahead, James Ooi, a market strategist at Tiger Brokers, indicated that the November season often brings relief from market swings. Historically, the VIX tends to drop by approximately 4% during this month, as midterm election results provide investors with greater clarity on the future policy landscape.